Montney Shale: Talisman sells Sasol stake in Cypress A assets for $1B

Source: Talisman Energy

Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) has announced it is deepening its strategic relationship with Sasol in the Montney shale play, to include the sale of a 50% net working interest in its Cypress A assets, for a total consideration of C$1.050 billion (US $1.04 billion). Talisman will operate and manage the Cypress A and Farrell Creek areas as an integrated development project.

"This transaction allows Talisman and Sasol to unlock additional value in the world-class Montney shale play and potentially accelerate development of the resources in the area," said John A. Manzoni, President & CEO of Talisman. "The Cypress A assets are very similar to Farrell Creek and, with our partner, we will now build an integrated long-term development plan for the area."

"This additional acquisition of another high quality natural gas asset will accelerate our upstream growth while also potentially advancing Sasol's already strong GTL value proposition utilizing our proprietary technology," said Sasol chief executive, Pat Davies.

In December 2010, Talisman and Sasol announced a similar transaction for the acquisition of a 50% net interest in Talisman's Farrell Creek properties in the Montney shale play, with Sasol acquiring an estimated 4.8 tcfe of net contingent resource. This transaction closed on March 1, 2011.

The Cypress A transaction represents the sale of approximately 14% (5.6 tcfe) of Talisman's remaining estimated 39 tcfe of net contingent resource in the play and approximately 17% (28,600 net acres) of the company's net Tier 1 acres of land in the Montney shale. Sasol will pay 25% of the consideration (approximately C$260 million) in cash at closing. Sasol will also provide an additional C$790 million to fund 75% of Talisman's future capital commitments in the integrated joint-venture development area.

The Cypress A transaction is subject to regulatory approvals and is expected to close by the end of the third quarter 2011.

Upon closing, Talisman will hold an estimated 34 tcfe of net contingent resource and 139,000 net acres of Tier 1 acreage in the Montney shale play, including Farrell Creek, Greater Groundbirch and the Greater Cypress area. The Cypress A properties are part of the Greater Cypress area, approximately 25 miles northwest of Farrell Creek. The Talisman and Sasol joint venture partners do not expect to commence commercial development at Cypress A, which is less mature than Farrell Creek, for several years. A number of options for long term egress from the area are being considered.

Sasol and Talisman have commenced a feasibility study to examine a world scale gas-to-liquids (GTL) facility in Western Canada, with Talisman having the option to participate as a 50% partner in the facility. This could provide a strategic alternative to traditional North America pipeline or LNG markets. The GTL process produces premium, clean liquids fuel. Sasol is leading this study with a front-end engineering design decision likely in the second half of next year.

Sasol is an integrated energy and chemicals company. Sasol is one of two companies with commercial GTL technology, with operating GTL projects in South Africa and Qatar, a project under construction in Nigeria and proposed developments in a number of countries around the world. Sasol is looking at expanding its proprietary GTL technology in new markets. Sasol is listed on the Johannesburg and New York Stock Exchanges, with a market capitalization of approximately US$35 billion. The company is also active in exploration and development across Africa and Asia.

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